Under Armour reportedly borrowed business from future quarters in 2016 to hide slowing demand

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An Under Armour store front is seen on November 04, 2019 in Sunrise, Florida.
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Under Armour borrowed business from future quarters to hide slowing demand in 2016, the Wall Street Journal reported Thursday.

The Department of Justice and Securities and Exchange Commission have been investigating the Baltimore-based company over its accounting practices. The two investigations were confirmed by Under Armour in early November, but the company has said that it has been cooperating with investigators since July 2017.

In 2016, Under Armour leaned on retailers to take goods early, former executives in sales, logistics, merchandising and finance told the Journal. Sportswear intended for factory stores would be sent to off-price chains in order to book sales in the final days of a quarter, according to the Journal.

Some of the executives told the Journal that such moves were common in the retail industry.

A person familiar with the matter told the Journal that federal investigators are examining emails that show that Under Armour’s founder and CEO Kevin Plank knew about the efforts. Plank is stepping down as chief executive Jan. 1, but will remain with the company as executive chairman. President and Chief Operating Officer Patrik Frisk will replace him as CEO.

Under Armour said in a statement that the ongoing investigation constrains the company from addressing every allegation in the media. Under Armour’s management and board of directors stand by its financial reporting, the company said.

The statement said, in part, “In this respect, our process for recognizing revenue and recording returns and other allowances has not changed and has always been in compliance with generally accepted accounting principles.”

Under Armour shares were down less than 1% in premarket trading Friday. The stock has fallen 3% since the start of the year. It has a market value of $7.7 billion.

Here’s the full statement from Under Armour:

We are aware of recent media coverage concerning Under Armour’s business practices. As we have stated previously, we firmly believe that our disclosures and our accounting practices have been entirely appropriate. Our management and board of directors have reviewed this matter extensively over the past two and a half years and stand by the Company’s financial reporting. Because the investigation is ongoing, we are constrained in our response and cannot address every allegation raised in the media or by anonymous sources cited in the news.

When Under Armour speaks, we always communicate our best understanding as to the market and the Company’s prospects. For many years, quarterly shifts in wholesale revenue related to timing of shipments based on financial goals; customer requests; year-to-year seasonal variance; different fiscal calendar alignments; product availability; logistics; and numerous other dynamics have been, and continue to be, part of the normal course of business practices in the apparel, footwear and retail sector. In this respect, our process for recognizing revenue and recording returns and other allowances has not changed and has always been in compliance with generally accepted accounting principles. Indeed, as reported by certain media outlets, analysts and accounting experts agree that such end-of-quarter practices are generally permitted under accounting rules.

Under Armour has become one of the world’s largest athletic performance brands through industry-defining innovation, ambitious and driven leadership, and a culture that holds itself to the highest standards of integrity including operating within standard industry business practices and always in compliance with generally accepted accounting principles.

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